Question: 1.5. In this chapter, we explored how prices tie all goods together. To illustrate this idea, suppose new farming techniques drastically increased the productivity of

1.5. In this chapter, we explored how prices tie all goods together. To illustrate this idea, suppose new farming techniques drastically increased the productivity of growing wheat.

a. Given this change, how would the price of wheat change?

b. Given your answer in part

a, how would the price of cookbooks specializing in recipes using wheat flour change?

c. Given your answer in part

b, how would the price of paper change?

d. Given your an wer in part

c, how would the price of pencils change? (Hint: Are paper and pencils substitutes or complement ?)

The Price System: Signals, Speculation, and Prediction • CHAPTER 7 • 129

e. Given your answer in part

d, how would the quantity of graphite (used in pencils)

consumed change?

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